People Of Color See Higher And Rising Unemployment In Possible Signs Of Softening Economy

    Despite the labor market showing overall strength, communities of color are still struggling with higher unemployment rates, which could be a possible sign of a softening economy, according to this article in Forbes. For instance, the unemployment rate for Black workers was 5.7%, and for Latino workers was 5.3%, compared to 3.4% for Asian workers and 3.2% for white workers. These gaps have persisted even as the labor market recovered from the pandemic-induced recession, and in recent months, the gap in unemployment has even increased for some communities of color. The unemployment rate for Latinos rose from a recent low of 3.9% in September 2022 to 5.3% in February, and for Asian workers, it increased from 2.5% to 3.4% during those months. Digging deeper into the data for Latino workers, the rise in unemployment is especially pronounced among Latino men, whose seasonally unadjusted unemployment rate increased from 4.6% in February 2022 to 6.4% a year later, while the unemployment rate for Latina women barely increased from 5.1% to 5.4% during that year. The article also highlights the risks of a slowdown or even a recession, as Republicans are refusing to give the federal government the ability to pay its bills, while the Federal Reserve seems poised to raise its key interest rates further. When economic growth falls, many more people of color are likely to feel the economic pain of unemployment and financial distress before white people will.


https://www.forbes.com/sites/christianweller/2023/03/11/people-of-color-see-higher-and-rising-unemployment-in-possible-signs-of-softening-economy/?sh=42af98e841cb

Here’s how the second-biggest bank collapse in U.S. history happened in just 48 hours

 Link to article: https://www.cnbc.com/2023/03/10/silicon-valley-bank-collapse-how-it-happened.html

Silicon Valley Bank (Ticker: SIVB) surprised its investors on Wednesday with news saying it needed to raise $2.25B to help support its balance sheet. Then on Friday, regulators seized its deposits, which means that this is the largest bank failure since the Financial Crisis in 2008s

The reason for this collapse is thought to stem from dislocation caused by high interest rates. As startups started withdrawing money from the bank to keep their companies afloat in an environment that is harsh for fundraising and for IPO, the bank soon found itself short of capital. The bank was forced to sell all its bonds at $1.8B loss.

After the call with that announcement that Thursday, the stock plummeted by 60% and customers withdrew a total of $42 billion at the end of that day. 

As far as I know, this is one of the largest negative side-effects of the Fed's decision. I am interested to see how the Fed would react to this dilemma where if they stop raising rates when inflation will be out of control but would doing so cause other banks to fail as well?

In just a few minutes this week, Powell changed everything on market’s view of interest rates

 Link to article: https://www.cnbc.com/2023/03/09/powell-changed-everything-this-week-on-markets-view-of-interest-rates.html

Before the Fed Chairman's speech, the market initially expected a 0.25 percentage point increase in the benchmark interest rates. However, after Jerome Powell's appearances where he cautioned that if inflation data remains strong, he expects rates to go "higher than previously anticipated", which then led the market to change its expectation to a half-point increase in March.

The reason behind his remark is attributable to the January higher-than-expected inflation data as well as a strong sign of the labor market despite the Fed's effort to slow it down. The unemployment rate at the moment is 3.4%, which is still considered quite low for a tightening monetary policy.

After this change in expectation, the market, especially equites, experienced more sell-off as investors became more nervous about the future rate hikes as nothing seems to be certain right now. 

The age of the grandparent has arrived

    In reading the Economist article "The age of the grandparents has arrived," I learned about the declining and aging population across the globe and the potential implications that the presence (or lack thereof) a grandparent has on the grandchild(ren).  

    To begin, it is no surprise that the current population is living longer than those 50 or even 20 years ago due to increased access to medication and a higher standard of living for many parts of the world.  The article states that the "global life expectancy has risen from 51 to 72 since 1960."  The article then comments on the decreasing family size; a woman's expectation for children has been cut in half.  Therefore the ratio of grandparents to grandchildren is steadily declining across the globe.  

    The article goes on to compare the impact that the presence of a grandparent in the life of their grandchild can have.  The results vary from country to country which is extremely significant for this class because the ways in which the culture and society organizes itself has direct effects on the importance of grandparents' roles.  Some key examples were Senegal, Mexico, Britain, and Sweden.  

    In Senegal, the presence of a grandparent, especially a maternal grandmother, in the household increased the rate of mother's returning to or entering the workforce--thereby increasing the financial stability and wellbeing of the family.  The rate at which children stay in school is also increased with the presence of at least one grandparent in the home.  As discussed previously in the course, the externalities surrounding education are very high for a society, so a lower rate of drop outs from children to take care of their siblings or help their parents work is lowered.

    In Mexico, the main source of non-parental childcare are grandmothers.  The grandmothers are very close with their grandchildren and pass down important aspects of the history and culture.  The mother is then able to work while the grandmother cares for the children to better support the family than a family in which the mother cares for her children.  Furthermore, care from a grandmother is also more trustworthy (culturally) than with the strangers at a daycare.

    In Britain, the presence of grandparents as caregivers actually increase the rate of childhood obesity, but it is unclear of the exact reason for this correlation.  There is also proof that grandparents are also more likely than daycare workers to leave the children with fire hazards.  Furthermore, the use of grandparents in place of traditional daycare limit the parents' ability to move for work therefore lowering the potential for a higher-paying job.

    Sweden, by contrast, has very few grandparents caring for grandchildren because of subsidized daycares and extensive maternity and paternity leave.  This allows grandparents to continue working in the formal sector for a longer period of their life because they do not have to quit in order to babysit.  However, the lack of "need" for grandparents as caretakers forces the grandparents to be continually isolated from the family which often leads to loneliness and depression.  However, in this system, the country is able to gain the most productivity and economic success because more of the population can work because of supports in place.  

    Despite the vast array of effects of having a grandparent in the house, we will continue to see a decline in the number of grandchildren meaning a grandparent would be able to give more attention to the few grandchildren that they do have.  Economically, the shrinking population will impact the output of a country, but given the increasing longevity of humans, we can expect that working years will likely be expanded.

 https://www.economist.com/international/2023/01/12/the-age-of-the-grandparent-has-arrived

The US Department of Justice Sues JetBlue Over Pending Spirit Airline Acquisition

 The US Department of Justice (DOJ) filed a lawsuit to prevent JetBlue Airways from acquiring Spirit Airlines. The DOJ argued that the purchase is monopolistic in that it would reduce competition and increase fares. Additionally, the DOJ is worried that the increase in fares would ruin the affordability that Spirit Airlines has long been known for. In contrast, JetBlue argues the merger would create a strong competitor to the top four carriers (American, Delta, United, and Southwest), which make up 80% of the market for domestic air travel. For perspective, JetBlue and Spirit make up roughly 9% of the domestic air travel market. This is not the first lawsuit the administration has brought against JetBlue. Back in 2021, the administration sued to eliminate a limited partnership between JetBlue and American Airlines. There has not been a ruling yet, however the decision will likely hold some precedent to the most current lawsuit. 

Article: https://finance.yahoo.com/news/us-sues-block-jetblue-buying-155819060.html

UK Economy Isn't Faltering Like Originally Thought.

    The recent numbers for the UK economy were released and the main point was the 5% contraction in GDP. A British asset manager contests that that number doesn't paint the whole picture. He uses many anecdotes to support his point such as: seeing people still buying houses and purchasing goods. He also points to companies increasing dividend payouts which is a sign of increased profitability. Business investment also increased the period by 4.8%. It seems as if within the UK there is a positive outlook on the future as compared to the people on the outside looking in. Most firms are having success but are uncertain, leading to a lack of debt taking on and a large number of reserves. Once the UK can encourage more business activity the economy should see an upsurge that counteracts the GDP contractions. The point of this all is to say that one indicator cannot encapsulate the complexities and intricacies of an entire economy.

https://www.cnbc.com/2023/02/23/uk-economy-in-a-lot-better-shape-than-bleak-figures-suggest-fund-manager-says.html

Sri Lankan Crisis

Sri Lankan Crisis

Sri Lanka's central bank has raised its interest rates in an effort to control inflation and relax its currency. This move is to secure a bailout package of $2.9bn from the International Monetary Fund (IMF) to help the country through its worst financial crisis since gaining independence from the United Kingdom in 1948. The country's economy has been hit by the financial crisis, with growth contracting by an estimated 9.2% last year and inflation that hit 50% in February.  Sri Lanka has increased interest rates, taxes, and electricity prices, among other measures, which has generated protests from citizens who were already struggling to make ends meet. The IMF has asked Sri Lanka to fulfill all the "prior actions" in order to finalize the IMF Extended Fund Facility arrangement. Sri Lanka is seeking IMF approval under a special policy called Lending Into Official Arrears, which allows the lender to approve the program without formal prior financing assurances from China.. Central bank Governor P Nandalal Weerasinghe said that with the rate increase, all "prior actions" have been fulfilled, and he was hopeful that the IMF package would be approved within this month. Despite the increase in rates, the central bank expects market rates will continue to reduce, while, in terms of currency, the country will gradually move towards a market-driven exchange rate country. 

https://www.aljazeera.com/opinions/2023/3/9/the-g20-could-help-fix-sri-lankas-debt-crisis-will-it-step

Is the Entire Economy Gentrifying?

     The title of this New York Times article is bold and definitely an eye catcher; but the authors tweak the definition of gentrification to better fit what's happening in the economy right now. Wealthy people aren't pushing poorer consumers out of the market, the producers are. The word premiumization has been the new term used to describe how companies are making their products more desirable to wealthier people by focused marketing and raising the prices of their products. Since the economy has cooled off and the Fed has been increasing the interest rate, companies have found that this process is the way to keep a high profit.

    One of the groups effected heavily from this is the poorer consumers. An example of this given in the article was American Express, who was open about saying that they choose to accept people with more wealth for their business. The "premium consumer base" is handling the economic downturn better than anyone else, so the credit card company is limiting their focus to likewise individuals.

    Another group effected could be the economy as a whole. The Fed is raising the interest rate to battle the ever rising inflation. If companies continue to raise their prices to get as much profits as they can from wealthy consumers, it could lead to a slower economic growth and less overall demand. The goal from these companies is to produce less while still holding the pricing power in the market.

    Competition could always come into the market and compete with the companies doing this with lower priced products, but this takes time. Unless a current company decides to break of the market trends and produce lower priced products, we should expect to see higher costs, interest rates, and inflation.

https://www.nytimes.com/2023/03/04/business/economy/premium-prices-inflation.html?auth=linked-google1tap

After seven years of Brexit talks, Europe has emerged as the clear winner

 Ursula von der Leyen, was invited to meet King Charles III at Windsor Castle this past week to be dubbed a “World Leader”. This came after she finally reached an agreement with Rishi Sunak, the prime minister, on how to handle issues pertaining to Northern Ireland, and how it would be included in the Brexit deal and not cause any sort of conflict with where the border would be placed. So for the first time in 3 years, it is easier to envision. Mr. Sunak is the fifth prime minister since the referendum of Brexit, which shows that it has been no small task, nor easy to deal with. Ms von der Leyen by contrast is just the second person in her job in the time since Brexit was first announced, and will probably get another five-year term next spring. On top of this, most Brits agree that Brexit was a bad idea, and wish that it would not have happened.

In the article it states that no country in the EU could honestly think that they would be better off by leaving. This is a debate that was brought up in class about Greece. Joining the EU was tough for Greece because they were not ready to be on the same playing field as Germany with the same currency. So although it was not that easy for Greece to join, I will agree that they could not be better off by leaving as this article states because they would have a very rapid inflation and lose currency value. Every person would run to take their money out of the bank, and banks would fail.

https://www.economist.com/europe/2023/03/02/after-seven-years-of-brexit-talks-europe-has-emerged-as-the-clear-winner

Metals Feel Chill as Beijing Shies Away From Major Stimulus

In the wake of a moderate 5% annual growth target set by the Chinese government, commodity prices, from iron ore to copper, fell. The target, unveiled at the National People's Congress (NPC), was below what most economists expected, due to the fact that China missed the previous growth target by a rather wide margin. 

The official documentation states that authorities aren't keen on any massive economic boost after the pandemic, and local government bond sales, which form the backbone of Chinese infrastructure development, were also modest. 

The NPC stated that the government merely aims to stabilize the economy, and doesn't aim to issue a massive stimulus, which sent Iron ore prices dropping 3.2%, with shares of major iron ore mining firms falling by 1.1% (BHP Group), and 2.2% (Rio Tinto), and Copper fell 0.8%, with zinc, aluminum, Brent oil, and gold moving 1.4%, 0.3%, 0.6%, and 0.3% respectively, in the wake of overseas investors having a bullish outlook on commodities, due to a higher stimulus effort expected from the government. China has harvested 686.55 million tons of grain in 2022, with a grain harvest of greater than 650 million tons since 2015, according to Chinese state media.

The NPC did, however, deliver good news for the Chinese agricultural sector, with a proposed push to increase grain production capacity by 50 million tons annually, in an effort to ensure greater food security. This news comes in the wake of the 0.4% rise in soymeal prices, and a 0.1% decrease in corn prices. 

The UK economy in "a lot better shape" than the bleak figures suggest

 Link to article: https://www.cnbc.com/2023/02/23/uk-economy-in-a-lot-better-shape-than-bleak-figures-suggest-fund-manager-says.html

The UK economy only contracted by 0.5% in December 2022, leading the country out of a widely anticipated recession.

Bank of England has projected that UK has entered a shallow recession at the start of 2023 that will last for 5 quarters but oil prices remain high and rising interest rates restricts spending.

However, Brough, a British asset manager, said that there is more resilience from consumers as they are still spending, which is quite the opposite from what people would expect from a recession. He also warned that people should not take this information as the contraction of the current market as most of the businesses w doing "okay". 

He still sees companies making dividend increases and providing good earnings statements, which means the market is in a lot better shape than what the GDP number is saying. He also mentioned that "out of 7 wonders of the world, calculating GDP growth is the 8th", implying how complicated it is only to get the GDP number.

Central Banks are struggling to control inflation in a growing economy

 The global economy shows signs of growth and recovery, with some countries seeing record growth rates and falling unemployment. However, this positive economic news is bad news for central bankers, who are struggling to control inflation and prevent the economy from overheating. 

The article argues that in order to prevent economic instability and inflation, central bankers need to start focusing on other tools like fiscal policy. They risk triggering a recession or financial crisis if they continue to rely on traditional tools such as interest rate hikes. 

The economic growth being seen around the world is fragile and could be threatened by factors like rising debt levels, trade tensions, and geopolitical risks. Central bankers must remain vigilant and use a wide range of tools to ensure sustainable economic growth and stability. 

Bangladesh urges G-20 to force companies making profit from Ukraine war to compensate poor nations

On March 2nd, Bangladesh’s foreign minister said companies making “runaway profit” from the war in Ukraine should compensate affected, less developed nations. Bangladesh has been harshly affected by the Russian-Ukrainian war as they get most of their energy sources from these areas. The Ukrainian war has already had economic analysts concerned about the effects it could have on the global economy. Last year, a United Nations report highlighted the fallout from Ukraine’s war could dramatically worsen the economic outlook for developing countries already grappling with debt financing related to the Covid-19 pandemic. Countries like Bangladesh could use those profits that companies are making to fuel and boost their own economic systems. Energy and Defense companies are the two biggest industries gaining this runaway profit from the war, which are the industries that countries like Bangladesh are short on due to the war. As the war has continued on, not only has it been harder for these less developed countries to get resources, but when they do the price is astronomically higher, making it harder for these countries to obtain these resources for their citizens, further worsening the economic situation. “For many developing countries already at high risk of debt distress, the spillover effects of the war may further worsen debt vulnerabilities due to the increasing balance-of-payments and fiscal pressures,” the UN said. This war has been discussed in class frequently and the various economic damage it is doing to countries outside of Ukraine and Russia, it is important to note how now these companies have the power to aid countries like Bangladesh but are choosing not to so they can keep their profits from the war. Bangladesh has already received a $4.7 billion financial aid package from the International Monetary Fund in January to help cushion these effects and cushion the looming financial crisis to come to less developed countries.

https://www.cnbc.com/2023/03/02/bangladesh-foreign-minister-ukraine-war-fallout.html

Eurozone Inflation, and Pressure on Prices

 Consumer prices in European nations have been rising at an unprecedented rate. Throughout the beginning of 2023, consumer prices in the 20 countries that use the Euro as currency rose at an annual rate of 8.5 percent during the month of February. This was down only 0.1% from the consumer prices in January of 8.6%. Although these rates are still concerningly high, they are down significantly from the 10.6% consumer prices that we saw in the month of October of 2022. However, there is a significant imbalance in consumer price when food and energy are included. Inflation is also significantly high in many European countries at the moment. In the month of February, France reached an inflation rate of 7.2%, and in Spain, inflation grew at an annual rate of 6.1%. Germany, as Europe's largest economy, currently has a growing inflation rate of 9.3%. This could mean severe risk of a deep recession in European nations. This rise in inflation and consumer prices could likely be attributed to the war in Russia and Ukraine, who are notable exporters of energy and agriculture. In addition, some of the inflation pressures can be attributed to the governments pull back from policies like price controls and subsidies that blunted the impact of rising energy prices for individual households. When there is a lack of intervention with these kind of regulatory policies, we can see a direct impact in the rates of inflation, and the consumer prices across dozens of nations. 

https://www.nytimes.com/2023/03/02/business/economy/eurozone-inflation-february.html 

China sets modest growth target of 5%

 Article Link: https://www.reuters.com/world/china/chinas-economy-government-revamp-focus-parliament-set-open-2023-03-04/

Summary: 

Bejing is setting a modest growth rate of 5% for 2023 before the start of the annual session of its National People's Congress, which is expected to implement one of the biggest government shake up in a decade.

During 3 years of strict Covid Control, China was only able to have a 3% GDP growth rate. The need for economic stability and consumption expansion is emphasized. The Chinese government plans to create around 12 million urban jobs. Risks still remain in the real estate sector.

While having a higher GDP growth rate tends to be considered good, the Chinese government have thought otherwise: "setting a higher GDP growth target would require massive stimulus, which would worsen the structural imbalances that China is trying to solve.

The goal is to bring more low-income earners to the middle class not through stimulus packages (cash handouts) but more through more spending in infrastructure (fiscal policy).

China's spending on military is expected to go up by 7% this year, exceeding the growth rate of GDP. While the country maintains a peaceful stance with Taiwan, China remains opposed to the country's independence.